Bank of England deputy governor opposes negative interest rates

The Bank of England (BoE) deputy governor for markets and banking, Sir Dave Ramsden has told the Society of Professional Economists that he is opposed to the BoE setting a negative base rate, saying that he thinks the benchmark can’t be lowered any further without counter-productive results.

“I see the effective lower bound [for interest rates] still at 0.1 per cent which is where the Bank rate is at present. It is useful to stress that.”

In the minutes of its September meeting, the BoE’s Monetary Policy Committee (MPC) announced it would begin “structured engagement” with the financial sector between October and the end of the year on the “operational considerations” of negative rates.

This announcement has resulted in speculation that the BoE was about to set a negative base rate, but the deputy governor voiced his opposition to the policy on the basis that banks will not pass on negative rates to retail depositors and because “household deposit rates would be unlikely to fall below zero” the resultant squeezing of banks’ profits would result in less, rather than more lending and stimulus. “Banks can offset the impact on profitability by not reducing lending rates,” Ramsden said. “But in doing this they would further reduce the amount of stimulus provided.” He went on to say that the BoE has “QE [Quantitative Easing] ‘headroom’ remaining” and that he instead backed the continuation of this “tried and tested” policy.

At its meeting on 4 November 2020, the MPC voted unanimously to maintain the base rate at 0.1 per cent. The Committee also voted unanimously to increase the target stock of purchased UK government bonds by an additional £150 billion, to take the total stock of government bond purchases as part of its QE policy to £875 billion.


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